The Risks of Taking on Significant Student Loan Debt
Given the high cost of attending college today, student loans have become a common way for people from low- to middle-income families to finance their education. However, taking on heavy or excessive student loan debt comes with substantial risks and lifelong costs — so much so that many Americans are currently experiencing a major student loan debt crisis.
Understanding these risks can help students and their families prioritize finding ways of avoiding student loan debt altogether or, at the very least, making more informed decisions about borrowing for college. This is especially important for financially vulnerable students, including many who come from military families.
Long-Term Financial Strain
Impact on Disposable Income
One of the most immediate effects of taking out significant amounts of student financial aid is the reduction in your disposable income. Your student loan monthly payment can consume a large portion of your earnings, particularly if you make only a modest income, leaving less money for essentials such as housing, groceries, and transportation. This financial strain can persist for years or even decades, depending on the amount borrowed and the interest rate.
Delayed Financial Milestones
Carrying substantial debt can force cash-strapped borrowers to delay major life milestones, such as buying a home, starting a family, or saving for retirement. Beyond the potential detriments to quality of life, delaying or avoiding some of these milestones can have long-term implications for financial security.
Negative Impact on Credit Score
Risk of Missed Payments
It’s true that having student loans and making payments by the due date can help you build a good credit history. However, if you're unable to make on-time payments, your credit score can suffer. A lower credit score can increase the cost of borrowing in the future, as you may be limited to higher interest rates on loans or be denied credit altogether. This in turn can affect your ability to rent an apartment, secure a job, or even purchase insurance.
Debt-to-Income Ratio
Having significant student debt can create a high debt-to-income ratio, which can negatively impact your credit score and work against you when you’re applying for home or car loans. This ratio measures your total debt relative to your income, and a high ratio can limit your ability to obtain additional credit, even if you have a good credit score otherwise.
Impact on Mental Health and Well-Being
Stress and Anxiety
The pressure of repaying large student loans can lead to significant stress and anxiety. Many borrowers feel overwhelmed by their debt, and this can lead to mental health issues (which can cause physical health issues as well), such as depression or chronic anxiety. The constant worry about making payments and the fear of default can be mentally exhausting.
Work-Life Balance
Some individuals may take on extra jobs or overtime work to meet their repayment obligations, leading to burnout and a reduced quality of life. The need to earn more to cover loan payments can interfere with personal time, hobbies, and family life, further affecting mental health and well-being.
Limiting Career Choices
Job Selection
High levels of student debt may force graduates to choose higher-paying jobs over those that align with their passions or values. This can be particularly challenging for individuals interested in modest-paying but rewarding work in nonprofit or public service sectors. The need to repay loans often overrules the desire to pursue fulfilling career opportunities.
Entrepreneurship Challenges
Significant student loan debt can also deter individuals from starting their own businesses. The financial risk associated with entrepreneurship, coupled with the need to make regular loan payments, can discourage would-be entrepreneurs from pursuing their dreams.
Impact on Retirement Savings
Reduced Ability to Save
The long-term nature of student loan debt can significantly hinder your ability to save for retirement. As more of your income goes toward loan repayments, less is available to contribute to retirement accounts. This can lead to inadequate retirement savings, forcing individuals to work longer or live with severe financial constraints.
Borrowing From Retirement Funds
In some cases, individuals may resort to borrowing from their retirement savings to pay off student loans, which can have severe consequences for their future financial security. Early withdrawals from retirement accounts often come with penalties and taxes, further reducing the amount available in retirement.
While student loans can be a necessary tool for financing higher education, it's crucial to understand the risks associated with taking on significant debt. By carefully assessing your financial situation and exploring alternative funding options, such as scholarships and grants, you can avoid the pitfalls of excessive student loan debt and work toward a more secure financial future.
Get College Scholarships and Avoid Student Loan Debt With MC-LEF
Since its creation in 1995, the Marine Corps-Law Enforcement Foundation (MC-LEF) has offered educational funding to the children of fallen military service members. Thanks to our generous donors, MC-LEF currently establishes a $35,000 educational account for every child who loses a parent serving on active duty as a federal law enforcement agent, a member of the United States Marine Corps, or a Navy Corpsman. To date, MC-LEF has awarded over $93 million in educational accounts and other humanitarian assistance to over 5,900 recipients. Contact us to learn more!
All MC-LEF officers and board members are volunteers; we have only one paid employee. We pride ourselves on running our organization as cost-effectively as possible so that the vast majority of our donor funds can be used to accomplish our mission of educating the children of those who sacrificed all. Please consider donating today!
